Romania posted one of the highest growth rates in the EU in 2017, with record-low unemployment and an improving financial sector. Domestic consumption supported by fiscal stimulus led the strong growth, while investment lagged and structural reforms slowed. Economic growth is expected to again exceed potential in 2018 with elevated inflation, but slow down over the medium term assuming the fiscal stimulus wanes. With signs of overheating, however, there is a risk that the current policy trajectory increases macroeconomic volatility, wears down buffers, and ultimately slows down convergence toward the advanced EU countries. Investor confidence in Romania could be disrupted by further deterioration in fiscal and external balances, weakening of institutions, or global financial volatility.